By Trevor Shackelford February 28, 2006 -- Quebecor World Inc. (NYSE: IQW) recently announced their fourth quarter and fiscal 2005 results. The company reported fourth quarter revenue of $1.7 billion, down 9% from $1.8 billion reported for the same period in 2004. Net loss from continuing operations for the quarter was $205 million, or $1.64 per share, compared to net income of $46.3 million, or $0.27 per share reported for the same period in 2004. Consolidated revenue for the fiscal year was $6.3 billion, down 1% from 2004. Net loss for the fiscal 2005 was $149 million, or $1.43 per share, compared to net income of $140 million, or $0.77 per share reported last year. Quebecor World’s fourth quarter and 2005 results were negatively impacted by a non-cash goodwill impairment charge of $243 million, ($232 million after tax, or $1.77 per share) related to the company’s European operations. Contents of this Summary • Quarter Highlights • Segment Performance • Guidance • Raine Radar • Q & A Quarter Highlights • During the year, the company eliminated approximately 1,100 positions on account of restructuring activities. However, the company created 80 new positions in selected facilities. • Operating margin before restructuring and goodwill impairment for the quarter was 5.3%, compared to 8.9% reported for the same period in 2004. For the full year it was 5.7%, compared to 7.4% reported for the fiscal 2004. • Impairment of assets, restructuring and other charges (IAROC) for the fourth quarter was $11.9 million or $0.08 per share, compared to $48.5 million, or $0.32 per share reported for the same period in fiscal 2004. • Non-cash charge includes a $5.2 million related to impairment of assets primarily in U.K. • Excluding IAROC and impairment of goodwill, earnings per share in the fourth quarter were $0.21, compared to $0.59 reported year-ago quarter. On the same basis, earnings per share for fiscal 2005 were $0.98, compared to $1.45 reported for the fiscal 2004. • Operating income before IAROC and goodwill impairment in the fourth quarter was $87 million, compared to $161 million reported for the same period last year. For the fiscal 2005, operating income before IAROC and goodwill impairment was $358 million, compared to $471 million reported in the fiscal 2004. • SG&A expense, excluding the impact of currency, was down by $10 million for the fourth quarter and down by approximately $42 million for the year. SG&A expense as a percentage of sales was 6.3%. • The reported tax rate before restructuring and impairment of goodwill for the quarter was 36.2%, compared to 30.6% reported for the same period in 2004. For the full year of 2005 it was 29.8%. • Capital expenditure for the fiscal 2005 was $394 million, compared to $133 million reported in the fiscal 2004. Increase in capital expenditure was primarily due to a major retooling program. • Free cash flow for the fiscal 2005 was $119 million, compared to $319 million reported in the fiscal 2004. • The Board of Directors declared a dividend of $0.10 per share on multiple voting shares and subordinate voting shares. The board also declared a dividend of CDN $0.3845 per share on series 3 preferred shares, CDN$0.421875 per share on series 4 preferred shares and CDN$0.43125 on series 5 preferred shares. Segment Performance North America In the fourth quarter, revenues from North American operations were down 5% to $1.32 billion from $1.39 billion reported for the same period in 2004. Year-to-date revenues were $4.88 billion compared to $4.85 billion reported last year. Fourth quarter operating income before impairment of assets and restructuring charges was $89.2 million, compared to $137.1 million reported for the same period in 2004. In the fourth quarter, the lack of an additional week compared to 2004, negative price pressures, higher energy costs and operational inefficiencies related to new press installations led to lower revenues and operating margins. In the magazine segment, volume was down 9% for the quarter and 5% for the full year of 2005 due to the lack of an additional week compared to 2004 and reduced volume from an important customer. During the year the magazine segment continued to secure market share by reaching new agreements with Time Inc., Primedia, Wenner Media and Morris Communications. In the Direct Mail segment, volume decreased 6% in the quarter and 1% for the year. In the retail group, volume remained stable for the quarter and increased 5% for the year. Revenues in the quarter decreased 3% and increased 5% for the year. The increased volume for the year is related to additional volume from existing customers and the addition of an offset printing facility in Pittsburg, CA. In the catalog group, volume decreased 6% in the quarter and 1% for the full year due to the lack of the additional week compared to 2004. The catalog group continued to secure market share by extending contracts and winning new customers such as Bass Pro Shops and School Specialty. As a part of the North American investment plan, a new 64-page press became operational in the catalog platform in the fourth quarter. In the book and directory group, revenues were down 13% compared to the fourth quarter of 2004 and 5% for the full year. The volume decrease in the directory group is due to the loss of one customer during the fourth quarter of 2005 and the change in format of another. Canada In Canada, volume decreased 7% from the fourth quarter and 1% for the year. The decrease in magazine volume was partially offset by an increase in catalog and retail volume. Revenues for Canadian segment decreased 3% compared to the fourth quarter of 2004. Europe In Europe, revenues in the fourth quarter were down 27% to $277 million, compared to $377 million reported in the fourth quarter of 2004. Excluding the positive impact of currency translation, revenues for the quarter were down 16% and 9% for the full year. Volume in Europe decreased 23% in the fourth quarter and 13% for the year. The decrease was largely due the continued impact of the loss of a major customer at its Corby, UK, facility, where some lost volume has been replaced at lower margins. France also reported negative operating results for the fourth quarter as a result of decreased volumes, workforce inefficiencies and lower pricing. Latin America In Latin America, revenues in the fourth quarter increased 15% to $65 million compared to $56 million in the same period last year. Excluding the positive impact of currency translation and paper sales, revenues in the fourth quarter increased 6%. Volume in the quarter increased 3% compared to the same period last year, explained by increased directory volume in its Brazilian and Mexican facilities. Operating income and margin increased in the fourth quarter and full year as a result of cost saving initiatives, as well as improved pricing in the Argentinean market due to economic recovery. Guidance The company provided no specific earnings guidance, but says that it anticipates to be negatively affected by continued pricing pressures and previously announced volume reductions during 2006. The company stated that it has made some progress in replacing lost volume, but it will not see the benefit of those agreements until the second half of 2006 and into 2007. Quebecor World is also promising continued cost cutting measures, including programs to reduce its energy consumption, as well as retooling efforts in both Europe and North America. Raine Radar The company sustained deep losses during the fourth quarter of 2005 bringing Quebecor’s 2005 performance into the red. The company’s European operations appear to be the biggest contributor to the poor financial performance. Lost customers, soft pricing, and operational woes have dragged the company down for the last 12 months, and the stock price has reflected it, with approximately a 60% decline. The company’s outlook for 2005 is also bleak with President and CEO Pierre-Karl Peladeau stating, “There is no quick fix in this business.” The company will continue to focus on restructuring and improving its operations, but that’s of little use if it doesn’t keep customers from defecting. Q & A 1. Difficulties in its European operations are concentrated in France and U.K. In the U.K. the loss of the Associated Newspaper equates to roughly 65% of the volume that the company was running when the plant was fully operational. Quebecor took on additional costs during the third and fourth quarters from headcount reductions and restructuring in that facility. 2. In France, the company has been trying to improve its efficiency by reducing headcount and removing inefficient equipment. 3. In North America, the company is in the process of replacing inefficient equipment. 4. The company intends to redistribute its equipment from its Corby facility to some of its other European operations. 5. During 2004 the company had a positive impact of $5 million from an extra week, whereas the additional week lost in 2005 cost the company $12 million, since the days lost were during a peak period. 6. Quebecor stated it has approximately 400 presses currently operating. 7. The company said that its strategy of diversifying and improving its equipment while staying capacity neutral will help the company in gaining a competitive advantage in many of its segments.